Common Tax Saving Mistakes You Should Avoid
Tax benefit is one of the biggest advantages of health insurance.
While going through multiple health insurance policies, you must have come across the concept of tax benefits under Section 80D of the Income Tax Act, 196.
Tax exemption or tax deduction may be a prime reason for many to invest in a health insurance policy, the fact is that even a small mistake can deprive you of this major feature.
There have been numerous cases in which insured individuals have lost out on their tax benefits. If you too don’t want to end up being in the same situation, it is advised to stay careful beforehand and avoid making errors mentioned below.
List of common mistakes that you should avoid to keep your tax benefits intact
Not paying the health insurance policy premium
One of the prime reasons families lose out on claiming health insurance tax benefits is missed premium payment. Be it the case of no health insurance policy purchase at all during the year or forgetting to pay renewal premium before the due date, you too can lose out on tax benefits under Section 80D of the Income Tax Act, 1961.
If you want to make the most tax benefits on your health insurance policy, make it a point to pay the policy premium on time and not wait for the health insurance company to remind you of the policy renewal.
Paying premium for other than permitted relationships
While you may possess or find numerous policies covering siblings, grandparents, grandchildren, in-laws and other relationships, learn that as per the Section 80D of the Income Tax Act, you are allowed to claim a deduction of premium paid only for self, spouse, dependent children (irrespective of the number), as well as parents (whether dependent or not). Relationships other than these do not qualify for tax benefits.
To avoid this mistake, make it a point to claim a deduction in your tax returns only for self, spouse, children and parents. If you are a financially stable individual paying a premium for self as well as your parents, both the premiums will qualify for a legitimate tax deduction, thereby reducing your tax liability.
Also, read Best Coping Tips to Self Quarantine Effectively At Home
Not submitting proper proof to the employer
When the financial year begins, employers ask for an ‘Investment Declaration’ from the employees. In this, submission of insurance and investment proofs are demanded. But, when an employee fails at providing a premium paid certificate from the insurer, the employer ends up not taking Section 80D deduction allowed previously. They may re-estimate tax for remaining months of the year and deduct a slightly increased TDS for remaining months.
If you want to avoid tax benefit loss due to the same reason, make it a point to buy health insurance, get it complete and provide proper proof to your employer within the time frame to avoid last-minute hassles and loss in a tax benefit.
Paying health insurance policy premium for multiple years
When you pay a premium for multiple years, the health insurance company takes away the advantage of availing tax benefits on an individual year basis from the next year onwards.
To prevent tax benefit loss in this case, it is important to pay policy premium on an annual basis. While you may be attracted towards the discount being offered for paying a premium for multiple years, keep in mind that you may not be able to avail tax deduction for coming years due to the same.
Paying health insurance policy premium in cash
Paying a health insurance premium in cash may lead you to a massive loss in tax benefits as an insured is only eligible for a deduction only if paying through any mode other than cash.
Choose modes of payment such as Internet banking, cheque, draft, and debit/credit card to become eligible for tax benefits.
Conclusion
Being ignorant of specific health insurance policy aspects related to tax benefits can result in disappointment at the time of claiming tax benefits.
It is important to be aware of the above mentioned prime elements associated with income tax claims to gain full benefits.
Also Read
Applicability, Deductibility, and Policies of Section 80D of Income Tax
Tax Saving Deadline Extended Till 30th June 2020
For any query related to health insurance policy tax benefits, feel free to call our InsuranceDekho experts at 7551-196-989.
